Bonnaroo May 27, 2010, 5:00PM EST

Who Says the Music Industry Is Kaput?

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Yet the dorm-room atmosphere belies the magnitude of the operation. In addition to Superfly, Bonnaroo is helmed by two other high-powered partners: Ashley Capps, a veteran Knoxville promoter who was instrumental in conceptualizing the festival and securing a site, and Coran Capshaw, a top-shelf talent manager (his clients include Dave Matthews and Tim McGraw) who serves as Bonnaroo's primary financier. Many of the operations team, meanwhile, are veterans of such live-music powerhouses as the Grateful Dead tours and Bill Graham Presents. Together, they plan and manage what, for a weekend, becomes the sixth-largest city in Tennessee.

The casual ethos doesn't mean there isn't a strong commercial instinct. "You've got a captive audience of 80,000 for four days," Waddell says. "That's a hell of a marketing opportunity." Companies like Budweiser, Ford, Canon, and the Cartoon Network shell out top dollar for facetime with Bonnaroo's audience of tastemaking college kids and affluent young professionals. Still, the marketing presence is muted compared with other festivals. There's Bud Light in the VIP tent and Ben & Jerry's new Bonnaroo Buzz flavor in the freezers, but the promoters strive to keep signage to a minimum and have resisted selling naming rights for stages or the festival. "They could do double what they're doing, easy," Waddell says. "But they're real careful about it." It seems to be paying off: In last year's tumbling economy, when high gas prices and tight wallets brought down all other sources of revenue, sponsorships for the festival actually rose.

On the cost side, meanwhile, Bonnaroo is famously thrifty. Organizers keep expenses in-house as much as possible, handling advertising through the newly launched Superfly Marketing Group and ticketing through their own website. As with any festival, the biggest expense is talent: One prominent agent who has booked multiple acts with Bonnaroo over the years estimates that the total cost of this year's bill is around $6 million, with headliners getting $1 million or more each. The economics change, though, the further you go down the bill: Second-tier acts often receive their standard fee or even less, and some lower-rung bands get nothing. They end up playing anyway because of the exposure.

Goodstone recalls that he and his partners would have been thrilled to break even on the first year. (For a startup music festival, three years of losses is the rule of thumb.) They did better than that: Online word of mouth helped sell out the festival in 18 days, and Bonnaroo has been in the black ever since.

Despite their success, attempts at expansion have so far been ill-fated. A New York installment planned for 2003 was canceled at the last minute because of logistical troubles, while the Superfly-produced Vegoose festival, staged in Las Vegas, held on for three rocky years before folding in 2007. The following year the company launched Outside Lands—a sort of Bonnaroo West, held in San Francisco's Golden Gate Park—which turned a profit the first year but has since followed, as Goodstone says euphemistically, "a more traditional festival model" (i.e., it has lost money).

Lately the partners have been thinking locally. Three years ago they bought the Bonnaroo property and started working on capital improvements like electrical installations and a permanent stage. Capps says they hope to use the site for things like sporting events, as well as other festivals. It's still a risky proposition, though. This year alone, two major festivals—Michigan's Rothbury and New Jersey's All Points West Music Arts Festival—shuttered for lack of funds.

For now, Bonnaroo's best hope for growth is monetizing what Farman calls its "curatorial voice"—expanding the Bonnaroo brand to include everything from television programming and mobile-phone apps to ad space on bonnaroo.com. "We haven't settled on a strategy yet," Farman says. "But we're talking about everything."